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Monday, June 20, 2016

The Supreme Court handed down a decision this morning in Cuozzo v. Lee.

Two questions were before the court:

(1) Is the decision to institute "inter-parties review" ("IPR") appealable?

(2) Is the Patent Office allowed to continue to use the Broadest Reasonable Interpretation as the standard of review?

They answered both questions "yes" (with some nuances). This has some implications for IP strategy.

First, the newly passed federal trade secrets statute continues to be an attractive alternative to patents. As the courts and Congress continue to chip away at patents (sometimes with a rock hammer, other times with a jackhammer), patents become less attractive and simply keeping your discoveries and inventions secret becomes more attractive.

Second, while the Court leaves open the possibility that some extraordinary circumstances, such as a constitutional question, may merit review of the decision to institute IPR, it holds that ordinary questions about the propriety of an institution decision may never be appealed. The only possible upside for inventors is that it is very likely that a similar conclusion will be drawn with regard to the denial of a request to institute review. The upshot is that patent holders with valid and infringed technology can expect infringers to continue the practice of filing a request for IPR and asking the Court to stay any infringement lawsuit pending the patent office's administrative (IPR) proceeding.

Third, the standard for IPR is substantially tougher on the patentee than the District Court standard is. In District Court, the patent claims are interpreted according to their ordinary meaning, and are presumed valid in the absence of "clear and convincing" evidence to the contrary. By contrast, in an IPR, the patent claims are interpreted as broadly as reasonably possible (meaning that much larger amounts of "prior art" are available to invalidate the claims). Making this uphill climb even steeper is the standard of review in IPR: A claim is invalid if the challenger shows it to be invalid by a preponderance of the evidence.

What the Court does not recognize (although it constituted an inordinate amount of the oral argument in the case) is that the USPTO rarely, almost never, allows a patentee to amend or narrow the claims during inter-parties review. This is contrary to the original process of getting a patent, where the patentee can amend dozens of times (if they want to spend that kind of money on requests for continued examination) in response to a negative decision by the examiner.

Best practice for a patent portfolio now includes keeping a live continuation (a continuation is a second patent filing, usually made right before the issuance of the first patent filing). This significantly raises the cost of inventing. To explain why, an example is useful:

Imagine that I file a patent disclosure describing a method of doing A, B, and C, and I also disclose doing those things in conjunction with any combination of steps D-Z. I get a patent for a method of doing A, B and C, with dependent claims covering D, E and F. I then let the patent issue without a continuation. It turns out that somebody else reads my patent and begins to infringe by doing steps A, B, C and Z in combination. Since my claim on A, B and C is infringed by A, B, C and Z (since infringement constitutes doing all of the steps in the issued claim), I sue. The infringer files for IPR and the patent office determines that that it is barely more likely than not that A, B and C are disclosed in the prior art and invalid. I apply to the patent office to narrow my claim to also require Z (which is not disclosed in any of the prior art that the patent office used to find the A, B and C claim invalid), and they refuse (they do refuse amendments in almost all cases). My patent is now invalid (where a District Court would have found it valid) and I have no right to narrow it even though I invented the combination of A, B, C and Z.

This unfair outcome can be easily avoided by a wealthy inventor who can afford to keep a live continuation on file, preserving the right to obtain a narrowed claim (such as A, B, C and Z) in the continuation, even after the IPR killed the parent. However, without an open continuation, the patent is simply gone and the infringer gets to use my invention for free.

Here are the take-aways:

(1) If you can choose between trade secret and patent, choose trade secret. Congress has substantially strengthened protections for trade secrets even as it substantially weakened protections for patents. This means that some great innovations will become unavailable as building blocks for a next generation of innovations (because those building blocks will not be available to the public), but regardless of whether it is good public policy, it is good strategy.

(2) If you do file for a patent (for example, because the technology can be reverse engineered), make sure to file dependent claims that are narrow enough to survive even the most stringent review and keep an open continuation on file.

(3) This impacts only the United States. For inventions where there is a foreign market, it continues to be good strategy to file foreign. At minimum, Germany makes sense as the biggest economy in the EU. The cost of a full blown international filing can easily exceed $100,000, so it becomes a bit of a game of kings.

(4) Hire a patent lawyer and an IP strategist. Patent law is moving so quickly that only those able to leverage expertise and experience have a reasonable shot at good IP protection.